DCIT Non Corporate Circle 2, CHENNAI V. Shriram Investments, CHENNAI

ITA 2895/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9270 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 12-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABIJIT RAKSHIT
• Assessee Lawyers: VEERABADRAM PRASANTH
• Keywords: Capital asset; Business expenditure; Question of law; Commercial expediency; Capital expenditure; Set aside
• Section: 260A; 36 (1) (iii); 37; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , !' , # $ BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBE R ' ./ ITA NO.2895/CHNY/2018 !% /ASSESSMENT YEAR: 2012-13 DY. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-2, CHENNAI. VS. M/S. SHRIRAM INVESTMENTS, MOOKAMBIKA COMPLEX, NO.4 LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. [PAN: AAAFS 2590M] ( & /APPELLANT) ( '(& /RESPONDENT) & ) * / APPELLANT BY : SHRI ABIJIT RAKSHIT, JCIT '(& ) * /RESPONDENT BY : SHRI VEERABADRAM PRASANTH, ADV. + ! ) ,# /DATE OF HEARING : 20.06.2019 -.% ) ,# / DATE OF PRONOUNCEMENT : 20.06.2019 / / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER : THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, CHENNAI, IN ITA NO.107/2017- 18/A.Y. 2012-13/CIT(A)-2 DATED 25.07.2018 FOR THE A SSESSMENT YEAR (AY) 2012-13. 2. M/S. SHRIRAM INVESTMENTS, A FIRM, IS ENGAGED IN THE BUSINESS OF PROVIDING FINANCIAL SUPPORT TO THE CONCERNS OF SHRI RAM GROUP. WHILE MAKING THE ASSESSMENT FOR AY 2012-13, THE ASSESSING OFFICER (AO), INTER ITA NO.2895/CHNY/2018 :- 2 -: ALIA, DISALLOWED RS. 7,80,98,638/- U/S. 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). AGGRIEVED THAT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE CIT(A). THE LD. CIT(A) FOLLOWING THE DECISION OF THIS TRIBUNAL IN ITA NO.995/CHNY/2017 FOR AY 2013-14 DAT ED 19.07.21018 ALLOWED THE APPEAL. AGGRIEVED AGAINST THAT ORDER, THE REVENUE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF EX PENDITURE UNDER SECTION 36(1)(III) OF THE ACT WITHOUT APPRECIATING THAT THERE WAS NO EVIDENCE PRODUCED BY THE ASSESSEE TO PROVE THAT THE SE EXPENDITURES WERE NOT IN THE NATURE OF PERSONAL OR CAPITAL EXPEN DITURE AND WERE WHOLLY EXPENDED FOR THE PURPOSES OF BUSINESS, IN LI NE WITH THE MANDATE OF SECTION 36(1)(III) AND SECTION 37 OF THE ACT. 3. THE LD. CIT(A) HAS ERRED IN PROVIDING RELIEF TO THE ASSESSEE WITHOUT EXAMINING THE FACT THAT THE ASSESSEE HAD FA ILED TO ESTABLISH WITH SUPPORTIVE EVIDENCES THAT THE LOANS TO EXECUTI VES AND PARTNERS OF THE ASSESSEE FIRM AND THE RESULTANT INTEREST LIA BILITY WERE ON ACCOUNT OF COMMERCIAL EXPEDIENCY IN LINE WITH THE R ATIO ENUNCIATED BY THE HONBLE SUPREME COURT IN THE CASE OF S. A. BUIL DERS LTD. VS. CIT(A), CHANDIGARH [288 ITR 1]. 4. THE LD. CIT(A) HAS ERRED IN PROVIDING RELIEF TO THE ASSESSEE WITHOUT EXAMINING THE FACT THAT SUCH LOANS ADVANCED AND THE INTEREST LIABILITY THEREON WAS TOWARDS ITS BUSINESS INTEREST WHICH INCLUDE MEASURES TAKEN FOR PRESERVATION, PROTECTION OR ADVA NCEMENT OF ITS BUSINESS INTERESTS, WHICH HAS TO BE DISTINGUISHED F ROM THE PERSONAL INTEREST OF ITS DIRECTORS OR PARTNERS AS ENUNCIATED IN THE DECISION OF THE HONBLE HIGH COURT OF DELHI, IN THE CASE OF PUN JAB STAINLESS STEEL INDUSTRIES V. CIT [324 ITR 396]. 5. THE LD. CIT(A) HAS ERRED IN PROVIDING RELIEF TO THE ASSESSEE ON THE GROUND THAT MATCHING PRINCIPLE IN TERMS OF INCOME A ND EXPENDITURE IS NOT APPLICABLE WHEN CASH METHOD OF ACCOUNTING IS FO LLOWED AS THE SINE QUA NON FOR ALLOWABILITY OF EXPENDITURE IS THE NEXUS BETWEEN THE INCOME AND EXPENDITURE REPORTED FOR THE YEAR IN QUE STION, AS APPLICABLE IN TERMS OF SECTION 36 AND 37 OF THE ACT . 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE AC RESTORED. ITA NO.2895/CHNY/2018 :- 3 -: 3. THE LD. DEPARTMENTAL REPRESENTATIVE PRESENTED TH E CASE ON THE LINES OF GROUNDS OF APPEAL. PER CONTRA, THE LD. AU THORISED REPRESENTATIVE OF ASSESSEE SUBMITTED THAT THE ORDER OF THE HON'BLE ITAT IN ITA NO.994/CHNY/2017 FOR AY 2013-14 DATED 19.07.2018 IN THE ASSESSEES CASE WAS SUBJECT MATTER OF APPEAL BEFORE THE HONBL E JURISDICTIONAL HIGH COURT OF MADRAS, WHICH IN ITS ORDER IN TCA NO.166 O F 2019 DATED 21.02.2019, DISMISSED THE REVENUES APPEAL. THEREF ORE, HE PLEADED THAT THE REVENUES APPEAL BE DISMISSED. 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE RELEVANT PORTION OF THE ORD ER OF THE HONBLE JURISDICTIONAL HIGH COURT, SUPRA, IS EXTRACTED AS U NDER: 6. WE HAVE HEARD THE LEARNED COUNSEL FOR THE PARTI ES AND ALSO GONE THROUGH THE ORDER IMPUGNED OF THE LEARNED TRIBUNAL. 7. A CO-ORDINATE BENCH OF THIS COURT, IN THE CASE O F ASSESSEE ITSELF, FOR THE PREVIOUS ASSESSMENT YEARS IN T.C.A.NO.2657 OF 2006 AND OTHER CONNECTED MATTERS, DECIDED ON 17.09.2014, HAD HELD IN FAVOUR OF THE ASSESSEE THAT DEDUCTION UNDER SECTION 36 (1) (III) OF THE ACT WAS ALLOWED, THOUGH THE ASSESSEE HAD BORROWED THE C APITAL FOR THE PURPOSE OF BUSINESS OF INVESTMENTS. THE RELEVANT P ORTION OF THE SAID JUDGMENT IS ALSO QUOTED BELOW FOR READY REFERENCE : 7. WE MAY FIRSTLY CONSIDER THE FIRST THREE QUESTI ONS AS TO WHETHER THE INTEREST OF BORROWED CAPITAL WHICH WAS UTILISED IN THE BUSINESS OF SHARES BOTH BY WAY OF INVESTMENT AND ST OCK-IN-TRADE IS ALLOWABLE DEDUCTION. IN SO FAR AS FIRST THREE QUESTIONS ARE CONCERNED, IN OUR OPINION, A COORDINATE BENCH OF THIS COURT IN CIT V. LOKHANDW ALA CONSTRUCTION INDS.LTD. (2003) 260 ITR 579 (BOM.), HAD ADDRESSED ITSELF TO THIS ISSUE. RELIANCE WAS PLACED ON INDIA CEMENTS LTD. V . CIT (1966) 60 ITR 52 (SC) WHICH WAS UNDER SECTION 10 (2) (III) OF THE INCOME TAX ACT,1922 WHICH CORRESPONDS TO SECTION 36 (1) (III) OF THE PRESENT ACT. THIS COURT ANSWERED THE ISSUE IN THE FOLLOWING MANN ER (PAGE 581) : THAT, WHILE ADJUDICATING THE CLAIM FOR DEDUCTION UNDER SECTION 36 (1) (III) OF THE ACT, THE NATURE OF THE EXPENSE& #126;WHETHER THE EXPENSE WAS ON CAPITAL ACCOUNT OR REVENUE ACCOUNT&# 126; WAS ITA NO.2895/CHNY/2018 :- 4 -: IRRELEVANT AS THE SECTION ITSELF SAYS THAT INTEREST PAID BY THE ASSESSEE ON THE CAPITAL BORROWED BY THE ASSESSEE WAS AN ITEM OF DEDUCTION. THAT THE UTILIZATION OF CAPITAL WAS IRRELEVANT FOR THE PURPOSE OF ADJUDICATING THE CLAIM FOR DEDUCTION UNDER SECTION 36 (1) (III) OF THE ACT. (SEE THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CALICO DYEING & PRINTING WORKS V. CIT (1958) 34 ITR 265. IN THAT JUDGMENT, IT HAS BEEN LAID DOWN THAT WHERE AN ASSES SEE CLAIMS DEDUCTION OF INTEREST PAID ON CAPITAL BORROWED, ALL THAT THE ASSESSEE HAD TO SHOW WAS THAT THE CAPITAL WHICH WAS BORROWED WAS USED FOR BUSINESS PURPOSE IN THE RELEVANT YEAR OF ACCOUNT AN D IT DID NOT MATTER WHETHER THE CAPITAL WAS BORROWED IN ORDER TO ACQUIR E A REVENUE ASSET OR A CAPITAL ASSET.- IT MAY BE NOTED THAT IN INDIA CEMENTS LTD. V. CIT (1966) 60 ITR 52 (SC), THE APEX COURT WAS SPECIFICALLY PLEASE D TO OBSERVE THAT THE OBJECT OF THE LOAN IS AN IRRELEVANT CONSIDERATI ON. IN THE STATE OF MADRAS V. G.J.COELHO (1964) 53 ITR 186 (SC) , THE S UPREME COURT WAS DEALING WITH THE DEDUCTION CLAIMED UNDER SECTIO N 5 (E) OF THE MADRAS PLANTATIONS AGRICULTURAL INCOME~TAX ACT , 1955. WHILE CONSIDERING THE ISSUE, THE COURT WAS PLEASED TO OBS ERVE THAT IN PRINCIPLE THERE IS NO DISTINCTION BETWEEN INTEREST PAID ON CAPITAL BORROWED FOR THE ACQUISITION OF A PLANTATION AND IN TEREST PAID ON CAPITAL BORROWED FOR THE PURPOSE OF AN EXISTING PLA NTATION. BOTH ARE FOR THE PURPOSE OF THE PLANTATION. THE COURT FURTH ER OBSERVED THAT THE PAYMENT OF INTEREST ON THE AMOUNT BORROWED FOR THE PURPOSE OF THE PLANTATIONS WHEN THE WHOLE TRANSACTION OF PURCHASE AND THE WORKING OF THE PLANTATIONS WAS VIEWED AS AN INTEGRATED WHOL E WAS SO CLOSELY RELATED TO THE PLANTATIONS THAT THE EXPENDITURE COU LD BE SAID TO BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF THE PLANTATIONS. 8. WE MAY ALSO GAINFULLY REFER TO THE JUDGMENT OF T HE CALCUTTA HIGH COURT IN CIT V. RAJEEVA LOCHAN KANORIA (1994) 208 I TR 616. THE LEARNED COURT WAS CONSIDERING SECTION 36 (1) (III) AND WAS PLEASED TO OBSERVE AS UNDER (PAGE 620) : THE ONLY ENQUIRY THAT IS TO BE MADE IS WHETHER TH E PAYMENT OF INTEREST WAS IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF THE ASSESSEES BUSINESS OR PROFESSION. THERE IS NO DIS PUTE THAT THE CAPITAL WAS BORROWED IN THE INSTANT CASE AND INTERE ST WAS PAID ON THE BORROWED CAPITAL. IT IS TO BE ESTABLISHED THAT THE AMOUNT WAS BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE AMOUNT BORROWED MAY BE UTILIZED FOR THE PURPOSE OF ACQUISI TION OF STOCK IN TRADE OR FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS. BUT SO LONG AS THE MONEY IS UTILISED FOR BUSINESS PURPOSES THE INTEREST WILL HAVE TO BE ALLOWED AS DEDUCTION. IT IS WELL SETTLED THA T BUSINESS EXPENDITURE IS NOT CONFIRMED TO EXPENSES INCURRED O N REVENUE ACCOUNT. CAPITAL EXPENDITURE MAY NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 37 BECAUSE THE SECTION SPECIFICALLY B ARS ANY DEDUCTION OF EXPENDITURE OF CAPITAL NATURE. BUT SECTION 36 I S DIFFERENTLY WORDED. THERE IS NO BAR IN SECTION 36 (1) (III) TO ALLOWANC E OF INTEREST PAID IN ITA NO.2895/CHNY/2018 :- 5 -: RESPECT OF CAPITAL BORROWED WHICH HAS BEEN UTILISED FOR PURCHASE OF A CAPITAL ASSET. THE POSITION OF LAW IN THIS REGARD WAS EXPLAINED BY THE SUPREME COURT IN THE CASES OF INDIA CEMENTS LTD. V. CIT (1966) 60 ITR 52 (SC) AND STATE OF MADRAS V. G.J.COELHO (1964 ) 53 ITR 186 (SC); (EMPHASIS SUPPLIED). 8. WE HAVE CONSIDERED THE REASONING GIVEN IN THE DE CISIONS REFERRED TO SUPRA AND ARE IN RESPECTFUL AGREEMENT WITH THE V IEW EXPRESSED IN THE SAID DECISIONS, FOR THE REASON ALREADY GIVEN BY US THAT THERE IS NOTHING IN SECTION 36 (1) (III) OF THE ACT THAT WOU LD DIS-ENTITLE THE ASSESSEE TO CLAIM DEDUCTION IN RESPECT OF INTEREST PAID ON THE CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS. 9. FOR THE FOREGOING REASONS, WE UPHOLD THE CONCURR ENT FINDINGS RENDERED BY THE COMMISSIONER OF INCOME TAX (APPEALS ) AND THE TRIBUNAL AND ANSWER SUBSTANTIAL QUESTION OF LAW AGA INST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THESE APPEALS ARE D ISMISSED. NO COSTS. 8. THE HON'BLEBLE SUPREME COURT, IN THE CASE OF S .A.BUILDERS, CITED SUPRA, HELD THAT IT WILL DEPEND UPON THE FACT S AND CIRCUMSTANCES OF THE RESPECTIVE CASE AND UNLESS THE MONEY ADVANCE D TO A SISTER CONCERN CANNOT BE HELD TO HAVE BEEN ADVANCED FOR CO MMERCIAL EXPEDIENCY OF THE ASSESSEE, THE INTEREST PAID THERE ON BY THE BORROWER ASSESSEE CANNOT BE DISALLOWED UNDER SECTIO N 36 (1) (III) OF THE ACT. PARA 36 OF THE SAID JUDGMENT IS QUOTED BE LOW FOR READY REFERENCE : 36. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLO WED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DE PENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTA NCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMER CIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANC ED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIR CUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS S UBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONE Y TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY F OR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDIN ARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. 9. WE ARE OF THE CONSIDERED OPINION, THAT, AS A MAT TER OF FACT, NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRESENT C ASE, BECAUSE, IT IS ESSENTIALLY A FINDING OF FACT AS TO WHETHER THE LOW ER INTEREST PAID ON THE BORROWINGS MADE BY THE ASSESSEE COMPANY FROM TH E SISTER CONCERNS OR THE GROUP COMPANIES IS FOR THE PURPOSE OF ITS BUSINESS OR NOT. WHETHER IT IS COMMERCIALLY EXPEDIENT OR NOT FO R THE ASSESSEE CANNOT BE DECIDED BY THE REVENUE AUTHORITIES AND UN LESS A DECISION TAKEN IN THE USUAL COURSE OF BUSINESS BY THE ASSESS EE CAN BE HELD TO ITA NO.2895/CHNY/2018 :- 6 -: BE ARBITRARY OR MOTIVATED, DELIBERATELY TAKEN TO DE FEAT THE PURPOSE OF THE REVENUE, IT CANNOT BE HELD THAT THE LOWER INTER EST RATE PAID TO THE BORROWERS ON THE BORROWINGS MADE BY THE ASSESSEE CO MPANY IS DISALLOWABLE UNDER SECTION 36 (1) (III) OF THE ACT. NO SUCH FINDING OF FACT HAS BEEN RECORDED BY THE TRIBUNAL. ON THE CONT RARY, IN PARA 7 OF THE TRIBUNAL-S ORDER, QUOTED ABOVE, THE TRIBUNA L, IN OUR OPINION, RIGHTLY HELD THAT WHEN THE CASH SYSTEM OF ACCOUNTIN G WAS ADOPTED BY THE ASSESSEE, AN INVESTMENT COMPANY, WHOSE BUSINESS IS ONLY TO BORROW AND LEND OR INVEST, THE SAME CANNOT BE SAID TO BE NOT IN THE BUSINESS INTEREST OR COMMERCIALLY EXPEDIENT FOR THE PURPOSE OF BUSINESS AND THE CONCEPT OF ;MATCHING PRINCIPLES;, WHICH HAS BEEN APPLIED BY THE ASSESSING AUTHORITY AND THE CIT (A) IN THE PRESENT CASE, WAS NOT REALLY APPLICABLE. IT IS NOT FOR THE REVENUE AUTHORITIES TO SUBSTITUTE THEIR OWN WISDOM OR NOTION ABOUT THE RATE OF INTEREST AGREED TO BETWEEN THE PARTIES, INCLUDING THE GROUP COMPANIES AND, AS SUCH, THE FINDING OF FACT ABOUT COMMERCIAL EXPED IENCY OR ABSENCE THEREOF IS A FINDING OF FACT, OUT OF WHICH, NO SUBS TANTIAL QUESTION OF LAW CAN BE SAID TO BE ARISING, REQUIRING OUR CONSIDERAT ION UNDER SECTION 260A OF THE ACT. MOREOVER, SINCE IN THE CASE OF ASS ESSEE COMPANY ITSELF, THIS COURT HAS ONLY DECIDED ON SIMILAR FACT S EARLIER AND DISMISSED THE REVENUE;S APPEAL, WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW OF THE MATTER FOR THE ASSESSMENT YEA RS IN QUESTION BEFORE US. 10. THEREFORE, THIS APPEAL, FILED BY THE REVENUE, I S ALSO LIABLE TO BE DISMISSED AND IT IS, ACCORDINGLY, DISMISSED. NO CO STS. 6. FOLLOWING THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT, SUPRA, THE REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JUNE, 2019 IN CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( . ) (S. JAYARAMAN) # /ACCOUNTANT MEMBER /CHENNAI, 0' /DATED: 20 TH JUNE, 2019 . EDN, SR. P.S / ) ',12 32%, /COPY TO: 1. & /APPELLANT 2. '(& /RESPONDENT 3. + 4, ( )/CIT(A) 4. + 4, /CIT 5. 2!56 ', /DR 6. 67 8 /GF